The quantity theory of money asserts that an increase in the quantity of money
A) by n percent will lead to an increase in the price level by n + 1 percent.
B) will lead to an equal percentage increase in real GDP.
C) will lead to an equal percentage increase in the price level.
D) will decrease the price level by an offsetting amount.

Question

Quizplus · Accepted Answer

The quantity theory of money states that there is a direct relationship between the quantity of money in circulation and the price level. As the quantity of money increases, the value of each individual unit of currency decreases, leading to an increase in the overall price level. Therefore, an increase in the quantity of money will lead to an equal percentage increase in the price level, making choice C the correct answer.

The Quantity Theory of Money Asserts That an Increase in the Quantity